About Me

Friday, December 21, 2007

In my free time, I join a few on-line discussions, and one of the blogs I like participating is that of the International Herald Tribune's. In "managing globalization" blog, one discussion is about free trade zones and counterfeit drugs. Below are the original post by the blog writer, then my comment, plus a counter-comment from another reader, then my rejoinder.

How much regulation of trade is too much? It's a tough balance to strike. On the one hand, if you're too finicky about the provenance of the goods you import, then you risk being accused of protectionism. On the other hand, if you regulate too loosely, you may leave the door open for scams and fraudsters. The latter case, as Walt Bogdanich writes, is apparently what's happening with some counterfeit drugs.

Bogdanich reports that drug counterfeiters have found safe havens in free trade zones ranging from Hong Kong to Dubai. With regulations designed to restrict trade as little as possible, the zones offer the makers of fake drugs a chance to conceal their products' origins and move them around with little fuss. Even when the local regulators suspect what's going on, they aren't even sure if they have jurisdiction.

It seems like it should be possible to stop fake drugs without significantly impeding trade. But governments may worry that by rooting out fake drugs, they will also find numerous other violations of rules of origin, e.g. goods produced outside the free trade zone that are masquerading as local output. The solution may be for for importers like the United States to relax their rules-of-origin requirements in exchange for better monitoring of fake and dangerous products in free trade zones. Given the difficulty of moving global trade talks along, though, my expectations for any sort of quick, clean resolution are extremely low.

Comments:

Anything can possibly enter in free trade zones — useful/original drugs and counterfeit drugs. Food and drinks, medicines and poisons, fertilizers and bombs, and so on.

The presence of counterfeit drugs can never be an excuse to relax international trade, or in the case of Hong Kong and Dubai, to undertake unilateral trade liberalization.

Brand or original manufacturers of medicines can check the origin of drugs that were purportedly "manufactured" by them from some countries. After all, when counterfeit drugs purportedly from GSK or Pfizer or other big pharma companies will be detected, it will be those pharma companies' image (and their sales and profits) that will be adversely affected. Corporate screening mechanisms will help minimize if not stop trading of counterfeit drugs around the world. But free trade must continue to march forward. Protectionists simply do not appreciate the "net gains" in trade - winners are plentier than losers. Otherwise, people will not trade voluntarily with each other.

Posted by: Nonoy Oplas — 18 December 2007

Nonoy - There was a lengthy article just a day or two ago in IHT about a very widespread problem within and between free trade zones, in which counterfeit drug makers seem to easily evade detection amid massive confusion over jurisdiction and regulation of international commerce. Please clarify how the big pharmaceuticals could succeed in catching the counterfeiters or in screening the illicit drugs when governments have so far been unable or unwilling to do so. You're probably right that much tighter inventory control measures would help, but such measures would be expensive and probably would defeat the purpose of importing cheaper drugs.

I generally support the concept of free trade, but Mr. Brinkman is right that the American government has negotiated very poorly for American businesses in its so-called "free trade" deals. As far as I know, America's trade deficits have widened with every country involved in such agreements, although I haven't checked statistics since the dollar's sharpest and most recent declines. Even with the falling dollar, I don't believe these agreements will be in America's interests for a long, long time. Perhaps someday when developing nations have narrowed the gaps between their own living standards and America's, the economic benefits might be more reciprocal. I'm not holding my breath, and until that day comes, the principal beneficiaries of these agreements will be people at the top of corporate America, and of course, their trading partners.

(From Japan)

Posted by: Gary Henscheid — 19 December 2007 7:32 am

Hi Gary, the issue of counterfeit medicines is also a problem here in the Philippines, partly because of the government's "parallel importation" policy I think. Cheaper medicines from India and China, same brand from same manufacturers, are imported into the country. Turns out that a number of those "same drugs" were counterfeit, very cheap, yes, but ineffective if not dangerous to the patients. A friend I talked to who works for Pfizer says some of those drugs purportedly manufactured by Pfizer India, imported into the Philippines by the government's international trading corporation or some of its accredited importers, turn out not to come from Pfizer India, but by some of those pharma companies in India that produce fake drugs. And the government has no capacity to detect such fake products, or perhaps the government does not care, all it wants is to sell cheaper medicines perhaps at all cost.

That is why I suggested that the pharma companies based in the importing countries be involved just to check if indeed those cheap but counterfeit medicines indeed came from their own manufacturing plants abroad.

But what escapes from many debates on counterfeit and expensive drugs, are taxation. Medicines are not taxed in India and Pakistan, for instance, one reason why they can produce cheaper drugs. Here in the Philippines, there are at least 2 taxes slapped on medicines — import tax and value added tax (12%). Plus income and other taxes on companies selling drugs, wholesalers and retailers. So when the Philippine (or other) government complains that local drugs are expensive compared to those available abroad, it blames somebody else, not itself.

Abolition of import tax, and free trade, as in free — zero tariffs and non-tariff barriers –and have a full range of competition among pharma companies and retailers, should help reduce drug prices. Then no need for "parallel importation" that risks entry of counterfeit drugs.